Principle of Economics

Question 1 :

Level of income.

If level of income increases, the demand of goods will increase because consumers will have higher purchasing power. Example, Ali received a pay increment of RM500 at the start of month. Therefore, he is able to spend an extra RM300 instead of the usual RM150 in TESCO.

Price of related goods

When the price of one good decreases, the demand for the substitutes decreases. Example, when the price of coca cola decreases from Rm 1.50 to Rm 1.00, demand for Pepsi decreases as well.

Consumer’s taste and preferences.

Some consumers prefer to shop at Tesco although the prices of goods in Giant are similar. This may be due to the fact that Tesco ensures that its products are always fresh and constantly restocks its products to avoid consumer’s dissatisfaction.

Expectations about future.

Consumers expect that there will be more promotions and discounts in festive months. Therefore the demand of consumers during those months will increase whereas the demand of the goods in normal days will fall as some may wait for the discounts.

Demand for special services.

Tesco offers services such as online delivery, lockers for customers, trolleys, tight security and express counters. Consumers enjoy these services and will go to Tesco for a better shopping experience.

Question 2 :

Demand for Special services. Tesco offers online delivery services to customers. Therefore, there is no need for customers to travel all way the to Tesco supermarkets in vehicles that pollutes the environment. This saves money spent on petrol and precious time. Customers will be able to compare prices of related goods sold in other supermarkets through shopping online and enable customers to buy cheaper products and save money. Also, Tesco will deliver most of the items ordered by various customers that shopped online in one go to save travelling cost. The other benefit of online shopping is less packaging is used. If customers shop in the supermarket itself, he/she would end up with extra plastic bags/boxes that might be disposed once they get home. Shopping online is more efficient with regard to packaging. A team of employees are trained to pack goods in a way that reduces material consumption. Therefore, everything ordered will come in the smallest possible box/bag which means that less materials will be used and disposed.

(Source: Tesco Malaysia website)

Level of income, TESCO offers eco-friendly products. Unfortunately, it may cost more expensive compared to normal products .Example an eco-friendly air conditioner cost RM1500 but a normal air conditioner cost RM 800. Therefore, if the level of income of consumer increases, they will be able to afford the eco-friendly air conditioner. Customers will also buy fresh organic vegetables as it is the healthier choice. It is free from harmful chemicals and pesticides that contaminates the environment. With the increase in demand for eco-friendly products, Tesco will supply more of these products and in future, the price will decrease. If the level of income is low, customers are likely to bring their own recyclable bags when shopping in Tesco on “no plastic bag days” because a fee would be charged if customers request for plastic bags. This reduces the usage of plastic bags. Low level income customers are likely to recycle any recyclable products because cans, paper and glass can be sold for a profit.

Consumer taste and preference. Some consumers are strong supporters of saving the environment. Therefore, TESCO offers a variety of environmental friendly products .Example, energy saving electrical appliances, organic vegetables and meat. Tesco also offers recyclable bags which are placed at the counters. Besides that, Tesco has the “Green Clubcard Points” plan whereby customers can collect points when they use recyclable bags when shopping. These points can be redeemed with real money. Therefore, consumers who supports green environment will prefer to shop at Tesco.

Question 3 :

The changes in price of basic necessities such as rice, sugar, and flour will not affect the demand elasticity of Tesco’s goods because it is inelastic. The greater the necessity for an item, the lower the elasticity. However, if the price of elastic goods such as television, furniture and clothes changes, demand for it will change. Example, the quantity demanded decreases when price of television increases and vice-versa. Also, products are more elastic if it is more expensive. Luxury goods sold in Tesco such as massage chairs are highly elastic.

As the level of income increases, customers will have inelastic demand as they can afford most of the things they want. Luxury goods sold in Tesco will decrease in elasticity as customers have higher purchasing power. However, if level of income decreases, elasticity increases as customers do not have high purchasing power. Therefore, they will bargain hunt and shop at supermarkets which offers the cheapest products A slight increase in price will cause customers to change their decisions

Price of other goods. Example, Tesco, sells various brands of rice. If price of brand “A” rice increases, customers can buy brand “B” rice for a cheaper price. There are many substitutes for Tesco’s goods. Example, there is a variety of soft drinks sold. If the price of Coca cola increase, the demand for Pepsi will also increase. Price goods in other supermarkets affects the demand elasticity of Tesco’s products. If the price of food in Giant is cheaper than the food in Tesco, demand for food products in Tesco decreases. Tesco will lose its customers to Giant and demand for Tesco’s products decreases.

Survey Conducted

After surveying 10 customers of Tesco, we have gathered the following information. 8/10 customers would not buy products from Tesco if the price increase unless it is a basic necessity. 9/10 customers would shop at other supermarkets if the price of their items decrease. 6/10 customers would buy more products at Tesco if their level of income increases. The other 4 would only buy more if the product is a necessity.